In an interview with ETMarkets, Goel said: “In recent times also, we have seen a surge in IPOs but more prominently in newer tech like fintech, electric vehicles (EV), tech, e-commerce, etc.” Edited excerpts:
We are in September and Sensex & Nifty50 hit fresh record highs. What is fueling the rally on D-Street or is it just liquidity wave?
Sensex and Nifty-50 indices have hit fresh record highs majorly driven by positive corporate earnings for the quarter ended June 2024, strong FIIs flow as well as record inflow in equity mutual fund.
Equity mutual fund inflow hit a record high in the month of June 2024 to cross Rs.40,000 crores. Mutual Fund SIP AUM was the highest ever at Rs.13.09 lakh crore for July 2024, compared with Rs.12.44 lakh crore in June 2024.
FII were also net buyers for the last 3 months (June-24: Rs.26,565Cr, July-24: Rs.32,365Cr and Aug-24: Rs.7,320Cr) FIIs are looking for growth opportunities in emerging markets like India.
The expectation of a modest interest rate cut by the US Federal Reserve has also boosted market sentiment. Investors believe that lower rates will stimulate economic growth, particularly benefiting sectors such as IT and Pharma, which heavily rely on US revenue.
While Healthcare and IT stocks are leading, other sectors such as financials and consumer goods are also contributing positively to the indices led by strong corporate earnings and expectation of strong demand in the upcoming festive session.
What is driving the rally in telecom, infra and capital goods stocks? They have rallied 20-30% in the last 6 months.
The infrastructure and capital goods sector has experienced a significant rally over the past six months, primarily due to its substantial contribution to the economy, where infrastructure sector accounted for approximately 3% of the total GDP.
Key government initiatives such as Make in India, Smart City Mission and Atmanirbhar Bharat are playing a crucial role in boosting the sector and the capital goods sector has experienced a rally, primarily driven by robust order inflows and the moderation of raw material prices.
Additionally, the recent budget allocation of Rs.11.11 lakh crore towards infrastructure is set to provide a strong foundation for continued growth in this sector.
The sector’s growth is expected to accelerate in the FY24- 28 period, driven by robust investments. Further the telecom sector has seen substantial growth, primarily driven by the increasing penetration in rural areas, where the subscriber base reached approximately 59.19% as of March 2024.
Additionally, wireless subscribers surged to 1,059.73 million in May 2024, contributing significantly to the sector’s expansion. The total number of telephone subscribers also grew to 1,203.69 million, acting as a key driver for the industry’s upward momentum.
With markets trading at record highs – IPO season has picked up pace. What is your take on the companies which got listed in sectors such as fintech, EV, tech, e-commerce etc. Have they added more flavour/broadened the horizon on D-St?
It has been observed that whenever the markets are near its highest level, the primary market gets flooded with more IPOs.
Buoyant market sentiment fuels an attractive environment for companies to go public and high liquidity makes it easier to attract investor interest in IPOs.
In recent times also, we have seen a surge in IPOs but more prominently in newer tech like fintech, electric vehicles (EV), tech, e-commerce, etc.
According to the BCG and Z47 report, the Indian fintech ecosystem is valued at over $100bn and is expected to grow 2-3 times in the next decade driven by a strong focus on financial inclusion and the increasing adoption of digital financial services, particularly in Tier 2 cities.
Hence, fintech are rushing for IPO market for public capital to participate in the growth trajectory.
The EV sector is also gaining traction due to a combination of government support, increasing consumer demand, and shift towards sustainable transportation solutions. OLA Electric has made successful market debuts, with significant stock price increase post-IPO.
New-age tech companies such as Go Digit and FirstCry were favoured by investors as they are focusing on companies with strong growth potential and clear paths to profitability enabled by technology.
Major players like Swiggy and Ecom Express are eyeing market debuts, reflecting a renewed interest in the e-commerce sector.
SEBI has also raised some concerns around SME IPO – what are your views?
SEBI’s recent caution regarding SME IPOs highlights significant issues related to fraudulent practices and inadequate governance.
The regulator has expressed concerns over promoters inflating stock prices through misleading information, ultimately selling their shares at inflated prices and leaving investors with devalued assets.
Data from Prime Database indicates that 152 SME IPOs this year had an average issue size of Rs.33Cr, with oversubscriptions reaching nearly 200 times, exacerbating the risk for investors.
Many SMEs, particularly smaller units, have financial statements and governance frameworks that fall short of retail investor expectations. Marketing influencers may exploit social media and other channels to disseminate misleading information, further inflating demand.
The excessive oversubscription of these IPOs often leads to inflated valuations that may be unsustainable post-listing. SEBI’s warning underscores the need for stricter regulatory oversight on disclosures and promotional activities to protect retail investors.
Enhanced scrutiny and enforcement of penalties for misleading practices are expected as SEBI aims to mitigate these risks and improve market integrity.
Where is the sector rotation happening? Where is smart money moving?
Nifty is at an all-time-high with an impressive market trajectory driven by macro and strong domestic factors.
The markets witnessed some cool-off specifically in sectors like Banking and Financial Services, Realty and Auto. But having said that, one positive factor is that the money is not moving out of the market, as domestic investors are still active in their trading activities, considering the IPO buzz and increasing flows in Mutual funds.
We believe in the long-term India growth story, but in some sectors valuations are steep. Despite this, there are some sectors which are looking attractive to investors as there is still liquidity in the market which will not let the market collapse.
Sectors like Pharma, IT, FMCG and E-commerce still present compelling opportunity and provide near-term growth and stability. The investors are leaning towards these sectors making them overweight.
Valuations are a little elevated, but if you look at India’s macro financial stability, that does warrant a somewhat premium valuation.
Which sectors are you overweight and underweight in?
While pharma and IT are some of the attractive opportunities in the current investment climate, real estate and BFSI are the two sectors that one must tread carefully.
The pharma sector is set to witness a booming demand not only related to healthcare needs, but also due to other initiatives taken up by governments. Stable returns on investment in pharmaceutical stocks can be expected, as the market projects it will reach US$130bn by 2030.
IT has remained unabashedly upbeat due to expected rate cut in the US, which is the largest market of Indian IT companies.
On the other hand, real estate continues to grapple with liquidity and other regulatory problems and hence is bound to underperform.
Even BFSI will remain under pressure due to an increase in the cost of funds. Investors are, therefore, reshuffling their investment to tap into growth potential in pharma and IT while taking a view on hedging risks in realty and BFSI.
Considering the fact we are trading at record highs – let’s also talk about valuation. Are we ‘expensive’ compared to the global peers?
The consensus estimate for Nifty earnings growth for FY25 and FY26 is roughly 12% and 15%, respectively, and we believe the companies will likely produce results that are consistent with these estimates.
We still think small and midcap firms will do better if you have a three-to-five-year outlook since small and midcap companies dominate sectors like consumer durables and the industrials, which are driving earnings momentum.
Investors need to be aware that many small and midcap companies are trading at extremely inflated valuations but there is still a lot of relative value to be found in this market, and we believe small and midcap companies will do better over the next three to five years.
What is your take on commodity stocks?
Earlier several commodity stocks have shown an upward trend in the Indian stock market but recently we have seen profit booking.
The major reason behind this was the Supreme Court’s rule which said that the states can collect past dues on royalty for mineral-bearing land from the Centre and mining companies starting from April 1, 2005.
This will have an adverse impact on EBITDA margins for mineral mining and processing companies.
Weak economy data reported by China also created stress on metal stocks as China is the biggest user of metal globally.
To maintain growth in China, they are doing heavy exports of metal in the international market which is also impacting metal price adversely.
The IT Index is at a record high in August. Can this rally sustain at a time when there is some chatter about slowdown in US growth?
The Nifty IT index reached a record high in August 2024, boosted by expectations of a potential rate cut from the US Federal Reserve.
This index has shown a significant gain of ~20.0% YTD, outperforming the broader Nifty 50 index, which rose by ~15.0% during the same period.
Analysts believe that the prospect of a rate cut in the US will enhance tech spending, particularly in sectors like BFSI, which is crucial for Indian IT companies.
Lower interest rates typically lead to increased tech spending, thereby benefiting Indian IT companies as they derive a substantial portion of their revenue from the US market.
Recent data indicated a rise in consumer confidence in the US, which could signal a healthier economic environment conducive to tech spending.
This optimism is reflected in the stock performance of major IT companies, with significant gains observed in stocks like LTI Mindtree TCS and Wipro.
Due to significant retail and institutional inflow in the market, the overall market trend seems bullish and helping IT stocks to sustain the momentum.
Despite the positive outlook, there are concerns regarding potential slowdowns in US economic growth, which could impact tech spending.
We believe the immediate outlook for IT stocks is favourable, there are underlying headwinds persist in the US economy such as household debt has hit record highs of $17 trillion in March 2024, weakening consumer spending, etc.
While the Nifty IT index is currently at a record high and supported by rate cut expectations, the long term outlook will entirely depend on timing of rate cut by Fed and how quickly and to what extent the US economy will revive.
What is your view on the PSU theme which was right on top in 2023 but witnessed some selloff in 2024?
PSU stocks have outperformed the broader market significantly in 2023, with the Nifty PSE index growing nearly 80% compared to 20% growth Nifty50 in 2023.
This surge was driven by strong macroeconomic indicators and government-led capital expenditure, particularly in sectors like railways, defense, and fertilizers.
The PSE index further grew by ~70% till 3rd June 2024, when the result of the general election was announced.
However, post that we have witnessed strong profit booking on the concerns high valuations following significant rally witnessed during the last 2 years.
We believe PSU space still holds potential for growth led by strong government support, all time high orderbook, enhanced operational efficiency to adapt to changing market dynamics, etc.
Increased capital expenditure in sectors like railways, defense, and energy is expected to sustain demand for PSU stock going ahead.
(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of the Economic Times)